Poll: Canadian stocks to gain in 2017, but risks multiply

Wed Dec 7, 2016 7:51am EST
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By Alastair Sharp

TORONTO (Reuters) - Financial strategists expect Canada's main stock index to rise more slowly in 2017 but to reach an all-time high by the end of next year if U.S. President-elect Donald Trump's tax and spending plans boost economic growth, a Reuters poll found.

But risks to that outlook have multiplied, the respondents said, citing Trump's protectionist talk on trade, a sharp jump in global bond yields, and Canada's wobbly domestic economy as reasons for caution.

Trump's election is "likely to lead to a selloff as potential negative effects of actual policies become apparent in an overvalued market," said Integris Pension Management Corp Chief Strategist Gavin Graham, who expects Canadian stocks to pull back in the second half of next year.

Trump has promised to cut taxes and spend on infrastructure, which is good news for some Canadian companies, but he has also said he would renegotiate international trade agreements. Canada does the vast majority of its trade directly with its larger southern neighbor and would also suffer if rising protectionism stifled global growth.

The Toronto S&P/TSX composite index .GSPTSE has rallied about 30 percent since hitting a three-year low in January. The Organization of the Petroleum Exporting Countries' landmark deal last week to limit production has given more momentum to the price of oil, a key Canadian export.

The median forecast from the Reuters poll of more than 20 strategists over the past week was for the TSX to rise more than 6 percent to 16,050 by the end of 2017 from Tuesday's close of 15,125.80.

"I expect moderate gains in the domestic market, driven primarily by a rebound in corporate profits as energy-sector profits balance out from recent sharp declines," said Edward Jones Canadian market strategist Craig Fehr.

Fehr said subdued domestic economic growth would probably limit gains as a softening housing market, elevated debt and choppy employment restrain consumer spending.   Continued...

A sign board displaying Toronto Stock Exchange (TSX) stock information is seen in Toronto June 23, 2014. REUTERS/Mark Blinch